India’s current account balance recorded a deficit of $8.1 billion (1% of Gross Domestic Product – GDP) in the quarter ended March 2021 (Q4FY21) on the back of a higher trade deficit and lower net invisible receipts, the Reserve Bank of India said in a release on Wednesday.
The country’s current account deficit in the January-March quarter stood at $8.1 billion compared to a surplus of $0.6 billion in the same quarter a year ago.
The deficit stood at 0.9% of the gross domestic product in the latest quarter, the RBI data showed.
However, the central bank said the current account balance swung into the surplus territory on the back of a sharp contraction in the trade deficit to $102.2 billion from $157.5 billion in 2019-20.
The CAD, the gap between the country’s overall foreign receipts and payments, is an important factor representing a nation’s external sector’s strength.
The three consecutive current account surpluses were largely caused by a decline in India’s trade deficit, which narrowed due to the ongoing coronavirus pandemic and was also impacted by a related drop in domestic economic activity.
The balance of payments showed a surplus of $3.4 billion in the fourth quarter of the financial year 2020/21, compared with a surplus of $18.8 billion a year earlier.
Net invisible receipts were lower in FY21 due to an increase in net outgo of overseas investment income payments and lower net private transfer receipts, even though net services receipts were higher than the year-ago period, the central bank said.
FDI inflows
Despite the pandemic, the net foreign direct investment inflows at $44 billion were higher in FY21 than the $43.0 billion in 2019-20, it added.
Net foreign portfolio investments also increased by $36.1 billion in FY21 as compared to $1.4 billion a year ago, the RBI said.
External commercial borrowings by India Inc recorded an inflow of $0.2 billion as compared to $21.7 billion in 2019-20, the RBI data showed.
There was an accretion of $87.3 billion to foreign exchange reserve on a balance of payments basis, it said.
The current account deficit in the March quarter was higher primarily on account of a higher trade deficit and lower net invisible receipts than in the corresponding period of the previous year, the RBI said.
Private transfer receipts, mainly representing remittances by Indians employed overseas, increased to $20.9 billion, up by 1.7% from the year-ago level.
Net outgo from the primary income account, primarily reflecting net overseas investment income payments, increased to $8.7 billion from $4.8 billion a year ago, according to the data.
The net FDI came at $2.7 billion during the March quarter as against $12 billion in the year-ago period.
Net foreign portfolio investment (FPI) increased by $7.3 billion – mainly on account of net purchases in the equity market – as against a decline of $13.7 billion in Q4 FY20.
Net external commercial borrowings to the country was lower at $6.1 billion in Q4 2021 as compared to $9.4 billion a year ago, the central bank said.
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